Late last night, iTouch hacker Martyn gained access to many of the iTouch's ramdisk files. He did this by interrupting the restore process after about 82-88 seconds. This put the iTouch into a state where iTunes still saw it in "Restore" mode but iPhuc was able to read files. Behold "martynmode". Before I headed off to sleep, effort was being made to use gdb breakpoints to stop iTunes at the right spot.
The big success last night was Martyn's recovery of the onboard asr file. However, Apple had zero'ed out the encryption key this time around. Attempts to edit then load the dmg files also failed. I believe that this morning, "Smiley" will attempt to mod iPhuc to read the XML sent back from the iTouch.
Unfortunately, the effort goes slowly without a clear line of sight to the goal.